The Pebble Group — Well placed for market improvement

The Pebble Group (LSE: PEBB)

Last close As at 18/03/2025

GBP0.43

0.00 (0.00%)

Market capitalisation

GBP70m

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Research: TMT

The Pebble Group — Well placed for market improvement

The Pebble Group’s FY24 results were broadly in line with January’s trading update, with revenue up 1% and a nudge up in gross and adjusted EBITDA margins. This was achieved despite difficult underlying trading conditions, with corporate confidence fragile. In these circumstances, delivering genuine value and support to customers is key. Pebble’s CEO has been hands-on, appraising the business strengths and opportunities in Facilisgroup, the North American SaaS business that now generates 45% of adjusted EBITDA, pre-central costs. With the major capital spend programme here now finished, Pebble can concentrate on reinvesting its strengthening cash conversion to supporting top-line growth.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Pebbles in wide calm Ocean

Media

FY24 results

19 March 2025

Price 40.00p
Market cap £65m

Net cash excluding leases as at 31 December 2024

£16.5m

Shares in issue

162.0m
Free float 80.2%
Code PEBB
Primary exchange AIM
Secondary exchange N/A
Price Performance
% 1m 3m 12m
Abs (13.0) (12.1) (34.8)
52-week high/low 70.7p 40.2p

Business description

The Pebble Group provides digital commerce, products and related services to the global promotional products industry through two focused, complementary and differentiated businesses: Facilisgroup and Brand Addition.

Next events

AGM

30 April 2025

Analyst

Fiona Orford-Williams
+44 (0)20 3077 5700

The Pebble Group is a research client of Edison Investment Research Limited

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS are fully diluted.

Year end Revenue (£m) PBT (£m) EPS (p) DPS (p) P/E (x) Yield (%)
12/23 124.2 9.9 4.59 1.20 8.7 3.0
12/24 125.3 9.7 4.43 1.85 9.0 4.6
12/25e 128.5 8.1 3.84 1.95 10.4 4.9
12/26e 133.7 9.0 4.23 2.10 9.5 5.3

Facilisgroup better aligned to market opportunities

Pebble has two differentiated businesses directed at different aspects of the promotional products market. Facilisgroup’s core market is distributors turning over $2m to $20m, which management estimates to be a market worth $8bn. Spend on new product development peaked at 14% of segmental revenue in FY23, dropping back to 7% in FY24 as the necessary software suite to meet all sizes of customers was put in place. The business should now need maintenance capex only. The additional cash to be generated is being channelled back into the sales effort with a view to building the top line more strongly over the next couple of years. The management team has also been broadened out with experienced hires. The consequence will be a lower segmental EBITDA margin of around 45%, from the 50% achieved over the last couple of years.

Brand Addition picking up new contract wins

Brand Addition works with major global brands on an international basis and has enviable client retention, with 90% of the top 20 clients in FY19 still customers. The statement highlights new contract wins in H224 that should start to contribute in the current year and build through to FY26. The new business pipeline reportedly remains healthy. Brand Additions' gross margins firmed up to 35% in FY24, but guidance is for a more conservative level of 33%.

Valuation

Difficult trading conditions have continued to weigh on the share prices of the peer sets we use for both Facilisgroup and Brand Addition in our sum-of-the-parts valuation. The former has been more affected as US SaaS stocks have struggled over the year-to-date, with share prices dropping 16% on average, while UK marketing services stocks are down 9%. Pebble’s share price is off 12% since the start of the year. Our peer-derived implied valuation for the group is now 71p/share, from 72p in September 2024, which is 77% ahead of the current level.

Financials

FY25 financial outlook

Our revised forecasts reflect the strategy for Facilisgroup, with the short-term impact on adjusted EBITDA margin. We have retained a degree of caution about the health of the underlying markets, given the uncertain macroeconomic prospects across all the group’s major markets. For North America, the level of uncertainty is compounded by the shadow of tariffs and how (and if) they will play out in the markets. The only impact to date may be in the level of Facilisgroup business being transacted through the preferred supplier base, which has dipped in the first weeks of FY25 and may be attributable to distributors stepping up their direct purchases to build a buffer of non-tariff affected stock.

Overall at Facilisgroup, the gross merchandise value (GMV) (ie the value of business being transacted by clients across the Syncore platform) is slightly ahead of the prior year. The GMV in any one year drives the technology subscription fees for that client for the following year. A detailed description of the business operations can be found in our last Outlook note.

At Brand Addition, sales orders are slightly up on the prior year and, as mentioned above, the new business win rate has improved, with a good pipeline still in place.

Operating cash conversion increased in 2024, and we expect it to continue to improve. In FY25, management is guiding that the additional funds will be used to bolster the sales effort and drive stronger organic revenue growth into FY26, as we have built into our modelling. This may prove to be overly conservative.

The balance sheet is strongly cash positive, with a year-end net cash balance of £16.5m excluding leases (£9.6m including leases), up from £15.9m (£8.3m) a year earlier, post payment of £2.0m in dividends and £1.4m in share buybacks. This is part of a larger buyback programme of up to £5.0m, which continues into the new financial year. Our model will incorporate further purchases as and when they are made.

Valuation

We appraise Pebble’s valuation on a sum-of-the-parts basis, using a selection of quoted US stocks with a predominantly SaaS business model for Facilisgroup and a peer set of UK marketing services companies for Brand Addition. Share price performances from both North American and UK-based stocks have struggled so far in FY25, with the US SaaS stocks down 15% and the UK marketing services stocks down 9%.

The valuation we derive for The Pebble Group is 70.9p, with Facilisgroup comprising 62% of the total. This is 77% ahead of the current market price.

A discounted cash flow valuation, at a weighted average cost of capital of 13% and a terminal growth rate of 2%, returns an implied share price of 73.6p, a little ahead of that derived from a peer comparison approach.

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This report has been commissioned by The Pebble Group and prepared and issued by Edison, in consideration of a fee payable by The Pebble Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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